Don’t start Social Security too soon

Dear Liz: I am 66-1/2 and eligible to collect my full Social Security benefit now. I am in good health and assume I will live into my 80s. I am still working and don’t need the extra money. Is it better to put off taking my benefit so that it will grow 8% with Uncle Sam, tax free and guaranteed, or should I take the money now, pay taxes on it and invest it? Politically speaking, I think I should take it, but my gut says let it grow. What do you think? Is there a program available to demonstrate the differences?

Answer: Far too many people grab their Social Security checks too early, locking themselves into lower payments for the rest of their lives. Some do so in the mistaken belief that their benefits, or Social Security itself, will go away or be dramatically altered if they don’t “lock in” their checks. It’s true that Congress needs to change the Social Security program if it is to meet all its future obligations. But lawmakers are far more likely to change benefits for young people than they are to mess with promised benefits for people close to retirement age.

As you’ve noted, when left untouched benefits grow about 8% a year, which is a strong incentive to delay filing. You’d be hard-pressed to find an investment with that kind of guaranteed annual return, let alone one that would offer that yield plus enough extra return to offset the taxes you’d pay on those benefits if you took them earlier.

The Social Security site has a benefit estimator that can show you the effects of claiming your benefit at various ages. You’ll find it at http://www.ssa.gov/estimator.

Finally, you should check out mutual fund company T. Rowe Price’s information about “practice retirement” at troweprice.com/practice, which details the benefits of continuing to work through your 60s while saving less for retirement. The growth in Social Security benefits and retirement accounts is so great during that decade that it often more than offsets a sharp reduction in savings, which would mean you’d have more money to spend on vacations and other fun pursuits even before you retire.